Disciplinary Action Against Perry, In re

• Court: Minnesota Supreme Court
• Writing for the Court: PER CURIAM
• Citation: Disciplinary Action Against Perry, In re, 494 N.W.2d 290 (Minn. 1992)
• Decision Date: 31 December 1992
• Docket Number: No. C2-92-149,C2-92-149
• Parties: In re Petition for DISCIPLINARY ACTION AGAINST Walter G. PERRY, an Attorney at Law of the State of Minnesota.

Page 290

494 N.W.2d 290

In re Petition for DISCIPLINARY ACTION AGAINST Walter G. PERRY, an Attorney at Law of the State of Minnesota.

No. C2-92-149.

Supreme Court of Minnesota.

Dec. 31, 1992.

Syllabus by the Court

An attorney's misappropriation from a trust for which he served as both trustee and counsel, warrants an indefinite suspension with no opportunity for readmission for five years.

Marcia Johnson, Director of Office of Lawyers Professional Responsibility, Martin A. Cole, Sr. Asst. Director, St. Paul, for appellant.

Theodore J. Collins, Collins, Buckley, Sauntry & Haugh, St. Paul, for respondent.

Heard, considered, and decided by the court en banc.

PER CURIAM.

This case arises out of a petition filed by the Office of Professional Responsibility to impose appropriate discipline on respondent, Walter G. Perry, for the misappropriation of trust funds that occurred during and after his tenure as trustee and attorney for his mother's trust fund known as the "EHWJ trust." Respondent was co-trustee with his mother, Helen Perry, who was also settlor. The terms of the trust indicated that it was to be used for the sole benefit of the settlor during her lifetime. Between November 1988 and January 1991 respondent concedes that he spent over $430,000 from the trust account on two yogurt franchises.

The referee ruled that respondent's conduct violated Minnesota Rules of Professional Conduct 1.4, 1.7(b) and 8.4(c). The referee found that respondent violated Rule 1.4 by failing to inform his mother of the conflict of interest that resulted from acting as her fiduciary and trustee of the EHWJ trust while appropriating substantial trust funds for his own benefit; respondent violated Rule 1.7(b) by not revealing this same conflict of interest and by acting as the trust's attorney in spite of the conflict; and respondent violated Rule 8.4(c) by engaging in various acts constituting dishonesty and misrepresentation, including pledging substantial trust moneys as collateral for a personal debt.

Respondent was admitted to the bar in New York in 1957. He came to Minnesota in 1983, was admitted to the Minnesota bar in 1986, and retired in 1988. Three years earlier, respondent's father, Edward J. Perry died. Edward was survived by his wife, Helen W. Perry, three sons and a daughter. In May 1987, using a New Jersey form book, respondent drafted the "EHWJ trust" for his mother. The language of the trust required that Helen Perry receive all of the net income of the trust in monthly installments. The trust also provided that in the event the

Settlor [Helen Perry] should become incompetent or for any other reason be unable to act in her own behalf, Walter G. Perry [respondent] may in his absolute discretion pay to or apply for the benefit of the Settlor, in addition to the payments provided for her, such amounts from the principal of the trust estate, up to the whole, as said Trustee may from time to time deem necessary or advisable for her use and benefit.

Upon the death of the settlor, the trust estate was to be divided equally among the surviving children and the spouses of those children who predeceased the settlor. The trust was funded by Helen Perry and in October 1988, had a net worth of over $450,000. In the fall of 1988, Helen Perry attempted suicide. Thereafter, she lived first in a New Jersey nursing home and then with her daughter Helen Kendall in Kentucky. In July 1989, respondent brought his mother to Minnesota to live with his family.

Until her death in September 1991, Mrs. Perry lived in respondent's home for 370 days. The rest of the time was spent in hospitals and nursing homes. From March 1991 until her death, Mrs. Perry depended on public assistance and social security to pay for the care she received, since, by this time, the trust was void of any funds.

In late 1988, respondent and his wife Jeanne entered into an agreement with TCBY Enterprises, Inc. ("TCBY"), a franchisor of a national chain of frozen yogurt franchises, to become franchisees of an establishment known as Jeanne Marie's Yogurt. In November 1988 and June 1989, funds totaling $75,000 were transferred from the Prudential-Bache account that held the corpus of the trust to Jeanne Marie's Yogurt.

In 1989, respondent transferred trust moneys in the amount of $290,000 from the trust account. This money was pledged as collateral for respondent's personal loans from First National Bank of Cold Spring ("FNB") for the yogurt business. The franchises both closed in 1990. Consequently, respondent defaulted on the loans for which the trust funds provided security.

The primary purpose of attorney discipline is not to punish the attorney but rather to protect the courts, the administration of justice, the legal profession and the public. In re Serstock, 316 N.W.2d 559, 561 (Minn.1982). The court must look at four factors in deciding the appropriate discipline: 1) the nature of the misconduct; 2) the cumulative weight of the disciplinary rules violations; 3) the harm to the public; and 4) the harm to the legal profession. In re Peters, 474 N.W.2d 164, 168 (Minn.1991); In re Isaacs, 451 N.W.2d 209, 211 (Minn.1990).

The supreme court is vested with the final responsibility for determining the appropriate sanctions in attorney discipline cases. In re Isaacs, 406 N.W.2d 526, 529 (Minn.1987). However, the referee's recommendation is accorded great weight by the court. Id.

The first issue we examine is whether, as respondent argues, Helen Perry consented to the use of her trust funds to finance respondent's foray into the yogurt business. The referee found that Helen Perry was not aware of the extent of the trust's investment in her son's business. The question of consent is undoubtedly one of fact and as such, should not be overturned unless "the appellate court is left with the definite and firm conviction that a mistake has been made." Krmpotich v. City of Duluth, 483 N.W.2d 55, 56 (Minn.1992).

The referee was able to base his finding of non-consent on several grounds, including hospital records which indicated that Helen Perry asserted that her son had stolen her money. Most revealing, however, were statements made by respondent himself.

Respondent gave a sworn statement on November 13, 1991, at the Office of Lawyers Professional Responsibility. During the course of the statement, respondent testified that after his mother became unable to act in her own behalf, he made distributions of trust principal for his mother's benefit under the provision of the trust that allowed him to use his "absolute discretion."

Respondent also made or approved of pleadings in the course of other litigation that show he acted without his mother's consent. In February 1991, FNB brought a declaratory action in state court against the trust to retain the certificates of deposit in lieu of respondent's default. The trust's defense to this suit, used with approval of respondent, was that Helen Perry did not approve of the pledge of money from the trust account as collateral for respondent's personal debt. In a separate lawsuit brought by respondent against TCBY in federal court, respondent admitted that he pledged trust funds as collateral without the consent of his mother as required by the trust agreement.

Respondent's testimony and pleadings indicate a willingness to change his position depending on his situation. It is very difficult to conclude that the pleadings in either of these cases could have been miswritten in the manner respondent contends. The court, however, is not faced with this question. The standard of review is whether the referee's findings are clearly erroneous. It appears the referee's findings are consistent with the record.

As a separate defense, respondent contends that the referee should not have relied upon the statements contained in the two pleadings from other litigation, arguing that a party cannot be prejudiced by pleading inconsistent positions. He contends that pleadings which are inconsistent or hypothetical are primarily intended to give notice and that permitting them to be treated as admissions would thwart this purpose. See John W. Strong et al., McCormick on Evidence, Sec. 257 at 150-52 (4th ed. 1992).

Given that inconsistent or hypothetical pleadings should not be used as admissions, respondent's argument is still unpersuasive. The pleadings in the litigation outside this attorney discipline action were neither hypothetical nor inconsistent with other portions of the pleadings themselves. The only inconsistencies present now are those between the pleadings in those cases and the positions respondent takes in the instant case. It is quite a stretch to allege that the inconsistent positions taken in a single pleading are due the same treatment as those in separate actions.

The Eighth Circuit articulated a rule in Garman v. Griffin, 666 F.2d 1156 (8th Cir.1981), that applies to the present case. "Where a party has made a statement in a pleading about his own conduct which is at variance with his position in the matter being litigated, the evidence is generally admitted." Id. at 1158 (citing Burdis v. Texas & Pacific Ry. Co., 569 F.2d 320 (5th Cir.1978)).

The Garman court also voiced its agreement with the Fifth Circuit's decision in Continental Ins. Co. of New York v. Sherman, 439 F.2d 1294 (5th Cir.1971), which stated:

As a general rule the pleading[s] of a party made in another action * * * are admissible as admissions of the pleading party to the facts alleged therein, assuming of course that the usual tests of relevancy are met. Strictly applied, however, this rule would place a litigant at his peril...